Up-to-the-minute advice, information, resources, and, on occasion, commentary on federal and New Jersey state income taxes, and the various New Jersey property tax rebate programs, and insights and observations on tax policy and professional tax practice, by 40-year veteran tax professional Robert D Flach.

Monday, July 30, 2012

WHAT YOU HAVE BEEN WAITING FOR!

I
am sure there are several out there who knew it was inevitable that I would
post my comments on the item “343,020 Reasons CPAs Should Talk Up Their Tax Expertise Now” by Jina Etienne, CPA, Director of Taxation of the American
Institute of CPAs, at AICPA Insights - and have been waiting with baited
breath.

Well
– here it is!

Jina
explains in the piece - “While CPAs have
dominated the regulated tax preparation arena, that landscape is about to
change.”Thank the Lord that it is!

And
Jina tells us –

“Unfortunately, the public doesn’t really
understand the difference between a CPA and other tax return preparers.”

I
wholeheartedly agree with this statement, but not in the way Jina intended.The public, and most journalists, have for
years believed the totally untrue “urban tax myth” that a CPA was automatically
a 1040 tax expert.

Articles
and columns on 1040 topics constantly suggest that readers “consult your CPA” when they mean “consult your tax professional”.The two terms are not interchangeable!

How
many times do I have to say this?Just because a person has the initials CPA
after his/her name does not mean that he/she knows his/her arse from a hole in
the ground when it comes to 1040 preparation.

The CPA exam is not a
test of 1040 knowledge or competence.I doubt there are any questions on the exam
that have to do with 1040 preparation.I
expect any tax questions on a CPA exam are concerned with “entity” taxation
(corporations, partnerships, estates and trusts).The
CPA exam is certainly no substitute for the initial competency exam now required
of “previously unenrolled” tax preparers.

And
while CPAs are required to maintain a designated number of hours of annual
continuing professional education, there
is no requirement that any of this CPE be in federal 1040 taxation.

However,
CPAs should be afraid, very afraid, of the new Registered Tax Return Preparer
(RTRP) designation.

It
is not that there are all of a sudden tens of thousands of new tax preparers to
“compete” with the CPA.There have
always been hundreds of thousands of educated, experienced, and highly
competent “unenrolled” preparers(like me) out there (often having to fix
mistakes made on 1040s by CPAs).Actually the new regulation regime has, and will, actually reduce the
number of non-EA and non-CPA preparers.

What
the new designation will do is affirm the fact that those who earn it have proven
themselves competent in 1040 preparation, and remain current by taking annual
CPE in federal taxation each year.It
will indicate to the public that these individuals, and not CPAs, are proven,
if not tax experts, at least competent tax professionals.

CPAs are currently exempt from having to prove basic tax competence by taking the IRS exam and are exempt from having to remain current in tax knowledge by taking at least 15 hours per year of CPE in federal taxation. Yet the IRS says it is ok for CPAs to prepare tax returns - while the rest of us must go through the hoops. There is no good reason for exempting CPAs who want to prepare 1040s for a fee from these requirements.

Many EAs, who are also exempt, and for good reason, from the RTRP test, are actually sitting for it so that they can add the initials RTRP to their name. This is because of the widespread public confusion about what an EA is. If a CPA wants to be held out as a tax expert he/she should sit for the exam, maintain 15 hours per year in federal taxation CPE, and get the RTRP credential.

Jina
wants clients to know that “their CPA is
the premier provider of tax services”.While “their” CPA may indeed be a tax expert – it has nothing whatsoever
to do with the presence of the initials CPA.It is
only because of the education, training, experience, ability, temperament, and
other factors that are specific to that individual preparer.

The
RTRP, and the EA, are the premier providers of tax services – not the CPA!

7 comments:

Not allowed to speak as to what's on the CPA exam, but of the 4 exams, only one (Reg) covers taxes, and that's along with other subjects such as business law and securities regulation. I can say that in my review study book for the Reg exam, 130 pages out of 639 were devoted to individual income tax.

I was doing income tax preparation as an unenrolled preparer before I got my CPA, and the CPA didn't make me any better at it. It does make me appear more qualified to do taxes, rightly or wrongly. I also appreciate the ability to order transcripts and get a power of attorney to talk to the IRS, but I don't see why RTRPs shouldn't have those abilities too.

Thank you for your post. As an EA, I am a bit touchy about the CPAs being held out as tax pros. I did some quick calculations of the number of CPAs with PTINs and it is less than 33%, while 89% of EAs have their PTINS. Hardly proof that CPAs are THE tax pros. EAs are required to have a minimum of 24 hours per year of CPE in taxation. Not accounting, quickbooks, systems, etc. but in taxation. As an EA who is acutely aware of how complex and ever changing the tax code is, I average at least 35 hours of CPE per year. I don't know how much time I spend researching, but I know it is easily more than triple my CPE hours.

You make a valid point about the public not understanding the EA designation. It really is a shame. Back in the day, when I took the SEE, it was a grueling two day test held once a year. It was, and still is, completely on tax law of all entities and kinds.

I will consider taking the RTRP test in order to further prove my worth to potential clients.

Thank you for your post. As an EA, I am a bit touchy about the CPAs being held out as tax pros. I did some quick calculations of the number of CPAs with PTINs and it is less than 33%, while 89% of EAs have their PTINS. Hardly proof that CPAs are THE tax pros. EAs are required to have a minimum of 24 hours per year of CPE in taxation. Not accounting, quickbooks, systems, etc. but in taxation. As an EA who is acutely aware of how complex and ever changing the tax code is, I average at least 35 hours of CPE per year. I don't know how much time I spend researching, but I know it is easily more than triple my CPE hours.

You make a valid point about the public not understanding the EA designation. It really is a shame. Back in the day, when I took the SEE, it was a grueling two day test held once a year. It was, and still is, completely on tax law of all entities and kinds.

I will consider taking the RTRP test in order to further prove my worth to potential clients.

I didn't see any point to becoming an EA because nobody knows what it is.

People think that tax = CPA, and if I want people to believe I know how to do taxes, it's the CPA that communicates that to them. I had people calling me their "CPA" before, because to them it means "tax person". I had to tell 2 different websites I wrote guest posts for to remove the description of me as a "CPA". I never said I was, they just assumed that anyone writing about taxes must be one.

It's the "uninformed" public that I deal with as clients, not other professionals, and they think CPA means "good at taxes", and EA means video games.

Follow by Email

(1) Before contacting me with questions about how a blog post relates to your specific situation, please be aware that I do not give free tax advice to non-clients by e-mail, comment response, or phone. So don't waste your time and mine.

(2) I am winding down my tax practice, and I will not, under any circumstances, accept any new clients. Period. I am actually trying to "thin the herd".